Vacancies in Boston Office Space at 20 Year High
Catherine Carlock has an article in the April 15, 2023 Boston Globe detailing the surge in office vacancy rates in Greater Boston. It started with the pandemic when many white collar professionals worked remotely. As Carlock says, the market took a "wait and see" attitude about whether office vacancies would stay high as the pandemic ended.As she says, we are seeing. More workers are doing their jobs remotely and as a result, the regional office vacancy rate was 19.1% in January, the highest in 20 years. And since January, more than 1.5 million SF of office space has been vacated - nearly a full Hancock Tower's worth.But it's not all bad news, as newer Class A towers (with the best amenities, the most modern conveniences) fill up, older Class B and C office space is struggling to lease up.Office buildings that are for sale are not a great investment at this time, with properties losing sometimes half their value. Loan defaults are also a concern, certainly for variable-rate loans.72% of Boston's $4.28 billion in budgeted revenue for this fiscal year is expected to come from property taxes, but the city's administration says its not worried. There are still businesses choosing to locate in Boston, notably Lego, relocating from Enfield, CT to Boston and the law firm Goulston & Storrs.
Daly Appraisal Newsletter - Vol 3
Appraisal Insights
Welcome to the third issue of Appraisal Insights! We've launched this newsletter to share customer stories and illustrate the power of real estate appraisals to provide valuable property and market insights.Recent appraisals that we’ve written or are working on include:
The effects of a temporary construction easement on the value of a single family home in Weymouth
An industrial building in Agawam that was once a tennis club
A 165 acre former dairy farm in Monson
An industrial property in Wrentham
An office building in Worcester
A mixed use retail and office property in East Longmeadow
Pictured is Kendall Square in Cambridge, where life science companies and biomanufacturing buildings near MIT and Harvard continue to proliferate. In the early 1960s, the neighborhood, much of it empty, was slated to be home to NASA. Then JFK was assassinated and LBJ shifted the space exploration center to Houston. In the late 1970s, science companies seeking lab space began coming to the cleared out neighborhood. Life science and biomanufacturing is now the predominant use, but there are also apartment towers, restaurants, retail shopping, a movie theater, and in the winter, an 8,400 square foot outdoor skating rink.
Featured Article
Bad Foundations:Tainted With PyrrhotiteBy Jim Daly
Russell and Tatiana Dupere came back from a soccer tournament to find a leaking water heater had flooded their basement. They went to repair the damaged rec room and found cracks in the foundation. Their house was built in 1990. But the cement foundation was deteriorating.Another couple in nearby East Longmeadow was all set to sell their home, which was built in 1992. The buyer’s inspector found the foundation’s concrete had spider-webbed and was crumbling. They sold for $200,000 less than what they had agreed to.The culprit in both cases: pyrrhotite, a mineral that reacts with water and oxygen and expands. The slow motion process destabilizes foundations and makes replacing them a necessity. Insurance typically fails to cover the loss.Officials estimate more than 35,000 homes in Northern Connecticut and Hampden and Worcester counties in Massachusetts have tainted concrete in their foundations. Everything has been traced back to one source: Becker Quarry in Willington, CT, which sold pyrrhotite-contaminated stone through sister company Joseph J. Mottes Concrete from 1983 until 2017. The companies agreed to stop selling the product at the request of Connecticut authorities. Both went out of business.Officials estimate the average cost to replace a foundation tainted with pyrrhotite is $185,000. Connecticut lawmakers created a $100 million insurance fund to begin tackling the problem house by house. US Representative Richard Neal, the Chairman of the House Ways and Means Committee, helped secure the funds.Distribution of the funds is slated to begin later this month.In Massachusetts, homeowners from Wales, Holland, Brimfield, Monson, East Longmeadow, and Longmeadow recently shared stories of crumbling foundations with local news outlets. Massachusetts lawmakers have begun to address the issue by having foundations tested. State Sen. Anne Gobi, D-Spencer, and State Sen. Eric Lesser, D-Longmeadow, are putting together a commission to come up with a long-term solution.So far the calamity is more prevalent in Connecticut, where state law mandates that sellers must disclose the possibility of tainted concrete. Because there is no such law in Massachusetts, mortgage lenders and realtors are justifiably concerned. Some banks are telling appraisers to scrutinize foundations poured between 1983 and 2017 and report signs of deterioration. Realtors who are selling newer homes are attempting to find documentation to prove that JJ Mottes did not pour the foundation. Usually such records are hard to come by.In May 2018, Russell Dupere, the homeowner with the flooded basement, told Longmeadow’s Board of Selectman the story of his home's crumbing foundation. On a video available on YouTube, he said tests proved his large brick Colonial’s cement foundation was made up of 25% pyrrhotite. It is expected to cost $325,000 to replace. Work has already begun.Longmeadow Selectman Richard Foster said the issue is being called “a slow motion disaster.” Estimates for repair for all affected Connecticut homes is $1 billion. Dupere said it was important to bring the issue public. “One by one, people are foreclosing quietly,” he said. “That’s not a good situation.”
Daly Appraisal Newsletter - Vol 1
Appraisal InsightsWelcome to the first issue of Appraisal Insights! We've launched this newsletter to share customer stories and illustrate the power of real estate appraisals to provide valuable property and market insights.Recent appraisals that we’ve written include:
- A 30 unit apartment building in Somerville, MA
- A shopping plaza in East Windsor, CT
- A large church in Newton, MA
- An old wharf building overlooking Boston Harbor with street level commercial and apartments above
- A 42 acre potential subdivision parcel in Hanover, MA
Many Massachusetts residents are wondering how a new casino will affect property values. On August 24th, MGM Springfield Casino opened its doors with a parade down Main Street. The $960 million casino has already changed the face of the downtown. Its buildings include a hotel, restaurants, sports bar, and movie theater. Here is a photo of one building. The building to the left is Red Rose Pizzeria, the iconic restaurant that has long served downtown Springfield.Featured ArticleThe Vacant Colonialby Jim DalyFeatured ArticleThe Vacant ColonialThe inspection of the bank-owned house was going well until I almost took a swim in the basement. I had already measured the rectangular Colonial style home and made a sketch. I took all my pictures. Now to the basement. I bounded down and stopped at the last step. A foot of water stretched across the finished basement. It was completely flooded.As most appraisers and realtors know, it doesn’t take long for a recently vacated home to go downhill. Cabinet doors come off their hinges. Utility companies disconnect their services. Boilers shut down. Sideways rain finds its way through old roofs. The weather fluctuates from autumnal warmth to extreme cold. Pipes freeze. Disintegration begins.Appraising an REO, or Real Estate Owned, property is challenging because you’re looking at a neglected property. You have to gauge how far the neglect has gone. Is there mold? Does the heating system work? Has copper piping been stolen? Have critters invaded the attic? In one home, I was warned by a fleeing tenant not to turn on the whole house fan so mouse droppings wouldn’t be scattered through the vents into the bedrooms.REO means a property is owned or controlled by the bank that holds the mortgage on it. Banks usually hire a realtor or management company to secure the home, empty its contents, and get it ready to sell. The most likely buyers are investors who plan to fix up the home and flip it for a profit. The appraiser’s job is to estimate the market value so that the bank doesn’t give away any equity or value a property might have acquired.According to World Property Journal, an online publication, there were 676,535 U.S. foreclosure filings in 2017, which represents 0.51 percent of all housing units. This represents less than a quarter of the foreclosures that occurred in 2010, when the country was in the throes of the economic downtown known as the Great Recession.In most Massachusetts markets, there is an overall scarcity in housing inventory, which means that once a home is foreclosed upon and restored, it can be sold as a functioning property within months. The problem is that wheels of foreclosure turn slowly. Right now in the U.S., it takes a bank an average of 1,027 days to foreclose on a property from start to finish. This is a 28 percent increase from a year ago. The worst offenders in Q4 2017: Indiana (2,370 days); Nevada (1,933 days); Florida (1,493 days); New Jersey (1,298 days); and Georgia (1,263 days). Few improvements are made to properties about to be foreclosed upon. Three to seven years is a long time for a property to sit idle.
The Colonial with the flooded basement is less than 20 years old. It's in subdivision in a town next to Springfield. It has four bedrooms, 2½ baths, and 3,000 square feet of gross living area. There wasn’t much wrong that a good cleaning, new carpeting, and a fresh coat of paint wouldn’t fix. The problem was trying to figure out the impact of the flood on value. So, in a Sales Comparison analysis, I used three recent sales – homes similar in age but requiring significant repair – to approximate a local investor’s mindset. Based on the opinion of value in my report, the bank now has the property listed for sale at auction. The minimum bid is for $231,000 – $185,000 less than the property foreclosed for back in April. Stay tuned for a follow up to this property in a future issue.